Towards a fair and efficient economy for all

1. Information Exchange and the role of Government Departments Public Sector Consultative Forum 26 March 2010 Towards a fair and efficient economy for all

2. Introduction • Successful collusion requires: • Coordination (agreement/understanding) • Monitoring • Ability to respond to deviations (‘Punishment’) • SA Competition Act: • Section 4 (1) (b) prohibits an agreement or concerted practice or decision by an association of firms, (in a horizontal relationship) that involves price fixing, dividing markets, or collusive tendering • A concerted practice means co-operative, or co-ordinated conduct between firms, achieved through direct or indirect contact, that replaces their independent action, but which does not amount to an agreement • Agreement prohibited regardless of whether collusion is successful Towards a fair and efficient economy for all

3. Information exchange and competition? • Competition is about firms providing more competitive offerings (price, quality, service) to increase sales • E.g. Discounts are undertaken because firms expect to increase sales at expense of their rivals • Competition is thus a means to efficient economic outcomes • But, firms (especially in concentrated markets) have clear incentive to dampen competition to increase or protect margins • Reaching an agreement/understanding, monitoring it, and responding • Are firms able to identify deviations from the prevailing market position, where these are well understood? • E.g. transparent pricing and a reduction in costs? Firms may engage in secret discounting, rebates etc. Will information exchange disincentivise this? Towards a fair and efficient economy for all

4. Information exchange and competition? • Example: • if firm A is considering a discount, and knows that others will quickly identify when they have lost market share and will respond (such as by cutting their own prices) then firm A will not expect an increase in market share to be sustained, and the incentive to make a more competitive offering may be substantially weakened • At the extreme, there is no need to ‘fix’ prices if each firm knows it is effectively a monopolist over its share of the market (information exchange can have the effect of dividing markets) • Are there clear and communicated pricing points (‘focal points’), and or understandings in the market about customers, conditions etc? • Is there excess capacity? • What is rationale for information exchange? Towards a fair and efficient economy for all

5. Bread and flour prices Towards a fair and efficient economy for all

6. Standards for information exchange • Complex area of competition law, SA precedents yet to be established • International case law can be examined (e.g. UK Tractors – EC case) • Generally considering pricing and sales information • Criteria where information exchange has greater effect dampening competition (independent action) include: • Small number of competitors, barriers to entry • Homogeneity of products • Extent of disaggregation (note: with two participants there is in effect no aggregation), and how readily can conduct of others be identified • Timeous nature of information exchange • Efficiency reasons? • E.g. US safety zone (for survey of prices or salaries): at least five providers (none >25%), info greater than three months old, survey by third parties Towards a fair and efficient economy for all

7. Implications • South African markets are very concentrated • History of regulation in many markets • Often well understood pricing points • May be close relationships between marketing managers of competitors, including at regional/local level • Monthly sales data, disaggregated by region, product, customer grouping is likely to be problematic • Where cartels uncovered in terms of e.g. price fixing arrangements, does information exchange inhibit more competitive conduct post-cartel? • Information exchange is a major focus of the Commission and involved in important investigations, as well as in cases already referred Towards a fair and efficient economy for all

8. Role of Government Departments? • Government has objectives for economic development and social welfare which may be promoted by cooperation with industry • Government uses information for decision-making and monitoring purposes • Industry may share these objectives, but may also have its own objectives • May benefit from unintended consequences of Government pursuing its objectives • Industry may cynically manipulate forums and Government interactions • Examples? • Cement • Fuel • Milling • Steel Towards a fair and efficient economy for all

9. Way forward? • Deeper interactions between the relevant Government Departments and Competition Commission required • Difficult to generalise, especially before cases are contested in the Tribunal in order to set legal precedent • Competition Commission keen to assist in finding solutions to achieve range of objectives • Trade/Industry associations? Competition Law is not an obstacle to lots of work of associations in e.g. promoting SA industry, dealing with challenges of SABS standards and certifications • But, industry associations have been associated with cartel conduct • If there is uncertainty then the Commission can be approached for a view Towards a fair and efficient economy for all